The Motley Fool

1 FTSE 100 dividend stock to consider buying with an ultra-high 9% yield

Home key with house keyring with calculator.
Image source: Getty Images

The FTSE 100 average dividend yield has been creeping higher in recent months. It’s now above 3.5%, making several companies look attractive to income investors like me. Although simply buying the stock with the highest yield isn’t always the smartest play, some ultra-high yields can offer me good risk/reward characteristics. Here’s one FTSE 100 dividend stock that I think fits into this category.

Good performance despite the pandemic

The stock I’m talking about is Persimmon (LSE:PSN). The company is a UK-based homebuilder, one of several within the FTSE 100. The share price is down 5.6% over the past year. 

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic… and with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. And if you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio.

Click here to claim your free copy now!

The past couple of years have been a bit of a whirlwind for the business. The pandemic saw the company briefly stop the payment of dividends in order to retain cash flow. Fortunately, the housing sector was an area not overly hit by Covid-19. The construction industry was able to continue (with some precautionary measures) for most of 2020 and 2021.

Persimmon has also benefitted from a booming housing market, again partly driven by Covid-19. Government measures reducing stamp duty have buoyed house prices. The working from home culture has also seen more people look to upsize, or move out of larger cities. As a result, the average UK house price in September hit a record of £267k. This was the largest monthly rise since early 2007.

Buying the dip in this FTSE 100 dividend stock

As far as FTSE 100 dividend stocks go, the yield of 9.35% is high. One element that has pushed this yield higher is the fact that the share price has fallen 12% in the past month. The dividend yield calculation is based on the dividend per share and the share price. So if the share price falls, it boosts the overall yield.

Why has the share price fallen recently? I think some concern is that house prices are getting into a bubble. If this is true and the bubble pops, this would be a large negative for the share price. Personally, this is probably the largest risk I see for this FTSE 100 dividend stock in coming months.

However, buying when the share price has dipped is a good strategy for dividend stocks. After all, it allows me to take advantage of the yield offered. 

With a longer-term view, I think the outlook is still positive for the company. The half-year results showed a strong forward order book. It had forward sales of £2.23bn, up 9% from the same time in 2019. Profit before tax for H1 jumped to £480.1m in comparison to £291.4m from H1 2020. 

Therefore, even if we do see house prices stagnate (I don’t foresee a full crash), Persimmon should have enough momentum to continue growing. With growth should come continued dividend payments. I’m considering buying shares now to benefit from this.

FREE REPORT: Why this £5 stock could be set to surge

Are you on the lookout for UK growth stocks?

If so, get this FREE no-strings report now.

While it’s available: you'll discover what we think is a top growth stock for the decade ahead.

And the performance of this company really is stunning.

In 2019, it returned £150million to shareholders through buybacks and dividends.

We believe its financial position is about as solid as anything we’ve seen.

  • Since 2016, annual revenues increased 31%
  • In March 2020, one of its senior directors LOADED UP on 25,000 shares – a position worth £90,259
  • Operating cash flow is up 47%. (Even its operating margins are rising every year!)

Quite simply, we believe it’s a fantastic Foolish growth pick.

What’s more, it deserves your attention today.

So please don’t wait another moment.

Get the full details on this £5 stock now – while your report is free.

jonathansmith1 and The Motley Fool UK have no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.